Rhythm Pharmaceuticals, Inc. (RYTM) Earnings Call Transcript & Summary

Well, thank you, everyone, and welcome to the 3:50 p.m. session of day 1 of the Global Healthcare Conference by Goldman Sachs. I have the pleasure this afternoon of having Hunter Smith, Interim CEO and CFO of Rhythm Pharmaceuticals; as well as Murray Stewart, who is the Chief Medical Officer. And with that, thank you both for joining us and participating in our virtual webcast this afternoon. Maybe just to start at a very high level, maybe it's best for those who may not know Rhythm Pharmaceuticals, maybe, Hunter, if you could just provide just a brief overview maybe of Rhythm and kind of what your focus is, and maybe that's a great way for us to start.

Sure, Graig, and thank you very much for including Rhythm Pharmaceuticals in today's conference, and thank you also to Goldman Sachs for putting on this conference. And we look forward to hopefully being back live in California at this time next year, but for now, this will have to do, as we're all painfully aware. So I think one of our passions at Rhythm, and Murray can talk about this in greater detail, is that many people think of obesity as a single condition and in ways people may have thought of cancer once as one to be. And so one of the things that we are focused on doing is developing in people's minds the concept that not all obesity is the same, and we are targeting genetic disorders of obesity, a rare subset of diseases that are characterized clinically by early onset severe obesity and unrelenting hunger, and these diseases generally cannot be managed by diet, exercise or other lifestyle changes or by existing therapeutic interventions such as bariatric surgery. So our target indications are quite rare. Individuals with these disorders live with insatiable hunger, consistent weight gain year in, year out, an average of 5 to 7 kilograms a year, and they often end up weighing 150 to 200 kilograms or 330 to 440 pounds by the time they're 20 years old. Because of the unrelenting hunger, the typical therapeutic interventions don't work for these patients, not even bariatric surgery works. In fact, they're contraindicated for bariatric surgery. So our approach is very targeted in that we are focused on disorders with ties to the melanocortin-4 receptor pathway in the hypothalamus of the brain, which is a well-established pathway that regulates hunger or satiety, energy expenditure and, therefore, weight. And our lead compound, setmelanotide, has demonstrated very significant and clinically meaningful results in reducing weight and hunger with a strong safety profile in a series of genetic disorders, including POMC and LEPR deficiency obesities, proving that it can restore the MC4R pathway function and setting a clear path for FDA approval later this year. We also have a Phase III study going on in 2 related syndromes, which are ciliopathies, and they're called Bardet-Biedl and Alström syndromes. This is a fully-enrolled study, which is expected to read out towards the end of this year, may slip into early next year because the last patient's last visit will be in the first week of December. And our Phase II program in these syndromes demonstrate a very strong efficacy and believe that we have a high probability of success there in Phase III. So in addition to that, we're studying setmelanotide for the treatment of additional 5 genetic and syndromic disorders in our Phase II basket study, and that's a total of 9 potential indications with a potential opportunity, just upwards of 85,000 patients in the U.S. and a similar number in Europe. So definitely still orphan -- an orphan drug market opportunity, very distinct from the general obesity market. We're pursuing all this with a background of trying to change the way certain physicians, particularly pediatric endocrinologists, think about obesity when they see patients with early onset obesity, trying to encourage genetic sequencing as a practice for early onset obesity and making them aware of the types of diseases that are consistent with the melanocortin-4 receptor pathway deficit. So I'll stop there, and let's continue moving forward.

Great. Maybe just if we just drill down just a little bit further, maybe this is an opportunity for Murray to kind of chime in. But specifically, in terms of the data that you've shown with your Phase III study that serves as the basis of the filing, can you just remind us of the magnitude of the efficacy you saw and any sign about your confidence in the asset?

Yes. I'd be delighted to. I mean, we really do have very good data. As Hunter said, it's worth knowing that before we present the change in data and weight loss, you've got to remember that these individuals, as Hunter said, are extremely overweight, and they're normally gaining 3 to 4 kilograms every year. They've tried everything. So the trajectory is way tough. And I'll share with the data now in the 2 main indications, POMC and LEPR. So the POMC individuals, we had 10 patients, and 8 of the 10 patients after year's therapy lost more than 10% of their weight loss with a highly significant p-value, 0.001. Mean reduction in these individuals was 25.4%, which means they were losing about 32 kilograms or 70 pounds in that year. As well as that weight coming off, they decrease hunger, and they felt a lot better, so the quality of life improved. So we really transformed these individuals' lives. With the LEPR patients, we had 11 patients in the pivotal study, 5 of 11 patients lost more than 10% of their body weight over a year, which again was highly significant. And the mean reduction in their weights was 13% with a weight loss of about 37 pounds or 17 kilograms. They had remarkable reductions in the hunger scores down by 40%, and 73% had more than significant reduction in the clinical scores. So what we're seeing in these individuals who tried everything, their weight going up, they're losing 1/4 of their body weight and really changing their lives. What was interesting is, halfway through the Phase III study, we stopped therapy for 4 weeks in a blinded fashion. So they didn't know, and they were taking placebo. And even in a 4-week period, they gained 5 kilograms in weight. [indiscernible] So this is a drug they'll need to take for the rest of their lives. Following the completion of the studies, 18 of the 19 patients have continued into the long-term extension data, and we've got some long-term extension data we'll be able to share with you later in the year. But the summary of the clinical data really is highly significant reductions in hunger and weight loss that's changed the difference of these individuals' lives.

Thanks for that, Murray. And again, the profile was one that gave you the ability to file the drug approval. And you now have a PDUFA date that sets in November this year. But with that said, maybe we can talk again about the patient populations. Perhaps how are these patients being treated now? Maybe the size of the patient populations just to give investors a sense of at least the initial -- yes, how you intend to grab those patients.

Yes. So it's a very rare disease. So we've identified people through our genetic sequencing approach, but the numbers are small. So we're certainly not going for a large population. They've been identified mostly through genetic testing. So these individuals, the clinical features, the POMC, they present with early childhood obesity. Often their weight curves are well above the 95 percentile. It presents with unrelenting hunger. So even if they've eaten, they're full, their parents have to lock the fridges and lock away the food. And at school, they're accused of antisocial behavior because they're so hungry, they actually try and pinch the food from the children around them. So they've got this unrelenting hunger, the severe obesity. And unfortunately, in the world we live in, it's not obviously to see these things from other people. So the only way we do this is through genetic testing. When the genetic test is done, if they've got defects, biallelic defects or defect in both of their alleles, and that's POMC or LEPR deficiency, they were able to enter the trial. And these are -- be the people that we'll be providing setmelanotide to. We think it's really important because these individuals have tried everything. Bariatric surgery doesn't work. The reason bariatric surgery doesn't work is -- what's unfortunate is bariatric surgery makes you feel full because you've obviously taken away some of the stomach or you've done a variation of that. In patients with POMC or LEPR deficiency, even after bariatric surgery, because you're not tackling the brain hunger, you're not tackling that drive, they still gain weight even after bariatric surgery. So setmelanotide really will make a difference to these individuals.

Okay. Great. And maybe given the fact that you do have a PDUFA that's coming later this year and assuming the company is gearing up for commercialization, so perhaps maybe this is a good time just to segue into kind of your pre-commercialization efforts. What are the commercial tactics that you think will be key? And maybe beyond that, we can touch upon how you think of pricing, reimbursement, market access. But maybe [Audio Gap] current kind of a commercial plans that you have, and how are you going about that?

Sure. Thanks, Graig. So the first two indications, as we've mentioned, are ultra-rare disorders, which are diagnosed through genetic sequencing. And that's not yet the standard of care for early onset obese patients in the United States. It's a bit more of a common practice in European countries in the U.K., but not a common practice yet here. So in cases -- so the epidemiological estimates for POMC are between 100 and 500 patients in the U.S. and about 1,000 and 2,000 patients for LEPR. But in both cases, the diagnosis rate is very, very low. Geographically, as mentioned, Europe is leading the way in genetic testing, and diagnosing its patients is part of the standard care with these disorders. All of our early clinical work started in Europe with European investigators. And genetic sequencing is more prevalent there as are centers of excellence focused on genetic disorders of obesity. We did an update on patient identification last year where we showed data for more than 13,000 genetic sequences from individuals living with severe obesity. And at that point, we've reported that those efforts resulted in about 0.2% of an identification rate for POMC or LEPR patients for a total of 29 individuals in the U.S. or Europe who had POMC or LEPR. Now we continue to sequence individuals with obesity and hyperphagia to work on identifying patients potentially eligible for setmelanotide. And as we get closer to approval, we're going to give an update on those efforts. [Audio Gap] And we've got an MSL team. Our commercial efforts are not going to materially change the trajectory. As long as we keep getting -- keep going to be the key step once we've found the patient [ item ].

Okay. Given that the initial patient populations are quite small, could you describe for us kind of how do you think about that coming on [indiscernible] that and your views there are [indiscernible] indication? Should we be thinking about how that [indiscernible].

Again, we're going to have to think about that as we get closer [indiscernible] is a year where we heavily focus from a spend [indiscernible] on [indiscernible] expanding our study, our sequencing program and our disease [indiscernible] and LEPR. Now [indiscernible], Bardet-Biedl and Alström syndrome, we expect our data on towards. Those are syndromes -- those patient populations are more diagnosed, they are more prevalent, certain [indiscernible] today. And the patients are -- we believe the patients that have experienced the therapy and [indiscernible] for patients in Phase III. So we will -- the size of anything we invest there [indiscernible] than it will be in [indiscernible] which are so [indiscernible] diagnosis right.

[indiscernible] Physicians in that target population. Can you add some color there?

So [indiscernible].

[indiscernible] all of these stays in the same. There's quite a lot of initiatives around physicians saying, wow, if we just try and target general obesity, it's not working. So let's be more target. Let's be more focused. As part of that, a lot of societies are realizing that we need to look at genetics of obesity. The pediatric society, for example, recommend genetic testing, if there are children with extreme obesity and hunger. So people -- the community is changing their thinking. 10, 20 years ago, people would not genetically test that obese patients. People have been genetically testing them mostly for research. But as we move forward, I expect as part of the armamentarium for physicians to be thinking as they review their obese patients, I need to do genetic testing. So for the POMC, LEPR, we are encouraging physicians to think about, do I have someone with a rare genetic? Do I need to do the test? For the syndromes, the approach is very much working in -- with the patients who are looked after in a multi-care facility. So a lot of these patients with Bardet-Biedl, for example, are looked after in big centers where they're looked after for their eye problems, their kidney problems. And then for us, with Bardet-Biedl, it'll be who's looking after their obesity, who's treating their hunger and working with physicians. So our approach with physicians is looking at genetics and syndromes.

Murray, I don't know if you had anything else that you wanted to finish on that point. But if not, I was going to ask just about how these patients might currently be treated. Clearly, there's a mechanistic difference between how setmelanotide might treat this genetic form of obesity, but there are other obesity treatments out there. So maybe can you provide kind of a compare/contrast on how other obesity drugs may or may not be appropriate for this patient population? Or what the experience has been if those patients do get treated with current available obesity treatments?

Yes, happy to do that. So I think, in some senses, we'll be pushing an open door here because the current market for obesity treatment isn't great. So there are a lot of the people who treat general obesity now are saying, well, the products have got side effects. They are not very tolerated, and they're not very effective. When we look at the rare genetic disorders, something like setmelanotide is coming in and really shifting. So for a drug to be approved for obesity now, you need to show a 5% weight loss. So when we are getting 25% and 30% weight loss in a difficult-to-treat population, that's making a significant difference. So I'm thinking that's because we're targeting the problem. We're targeting the hunger. Something like GLP -- so I think the GLPs are doing well. I think that they're not for the rare genetic disorders. So they work by making people feel full. They work very peripherally. So they don't work in the same way as setmelanotide, so they're different. So GLPs make people feel full. Unfortunately, quite a few people drop out because it does make you feel quite sick, and people don't tolerate that so well. Setmelanotide works in a different way. It tackles a central aspect. We didn't have any withdrawal both in our Phase III program because of nausea and vomiting. Everyone continued in the study. That's not a problem. So in some senses, they're different. In fact, in some of the patients in the Phase III study had tried the traditional drugs. They actually tried GLPs. They tried even amphetamines and tried bariatric surgery. Until they got setmelanotide, nothing had worked. So I think there are places for lots of new drugs in obesity. We are very targeted. And I think the setmelanotide is right for the genetic diseases. I think the GLPs are great for general obesity.

And is there even a potential view on whether [Audio Gap] approaches? Or does it really not make sense given the different central versus peripheral acting mechanisms?

So I think there may be room for combinations in the future maybe in different populations. I think it is important to realize they act differently. But I think the first choice for the centrally-acting rare genetic disorders would be setmelanotide given its targeted approach. But in future other indications, they may be used for complementary modes of action.

Okay. We're in a COVID-19 world and whether COVID-19 is going to be with us for some time or perhaps it's receding, but even with that said, there are companies like yourselves that are likely to be launching in some sort of a COVID-19 landscape. So maybe if you could [Audio Gap] COVID-19 impacts, the way you're thinking about launching the product or not, whether telemedicine is something that is of use or not. Just any comments on how COVID-19 might impact or not your thoughts around a commercial launch.

Yes. So I think it will impact it. Obviously, we're in a different stage of communication. I mean, it's interesting this meeting, hopefully, is going well, and we're all virtual, and that's because we're communicating successfully through different media. We've actually done our clinical trials now through some virtual meetings, so the patients in the trials have been contacted by the physician using technology like this. We've actually got electronic scales delivered to weigh people at home. And using iPad technology, the physician can watch the patient stand on the scales and look at their weight and see if they lost weight without them coming to the clinic. So we've practiced telemedicine in clinical trials. With the MSLs, we actually recently held what we call our GOLD program. So we do genetic obesity learning. We go out, and we educate the general physicians and the pediatric endocrinologists about rare genetic disorders. And we've held successful meetings through Zoom educating about obesity. So I think the future will be more telemedicine, more Zoom meetings that we can educate and inform people about genetics of obesity.

Okay. Great. I know a common question that I get from investors around setmelanotide is how you're thinking about pricing and what's the market access or reimbursement landscape might look like. You guys have done -- engaged with payers. You've done your market research. What are your current thoughts on pricing, market access and reimbursement?

Sure. So these are very low prevalence disorders, ultra-rare disorders, and the diagnosis rate makes those numbers even lower. So the likelihood that most payers are going to see these patients is relatively low, certainly on a weighted average basis. And the unmet need is very significant for these patients. I mean, obviously, there are diseases with clear progression to mortality. I think this is not as clear in that state. So it's more of a moderate to severe disease progression type of drug, but it is still pretty adverse. So we've tested a variety of pricing levels with payers just to get a sense of where there's elasticity. And most of the levels of the sort of $300,000 to $600,000 range that you see for the non-oncology orphan therapies does not trigger any pushback from the payers. Now having said that, we think that's one way of looking at it. But it is really important to remember that there's an alignment between how patients respond to our therapy and the interest of the payer, which is we rarely can document a success in treating a patient that doesn't respond in the first 12 weeks. And in fact, it doesn't respond in the first 4 to 6 weeks depending upon dosage levels. So for the most part, the payer is going to be typically getting value for money when they are -- when setmelanotide is prescribed because the trial of the medicine for a new patient is either going to succeed or fail in a relatively short period of time.

Great. Maybe moving on from the initial indications. We're certainly looking forward to additional data from a basket study. And here, you're looking at different subpopulations within obesity that, again, are genetically defined. Maybe you can provide for the audience kind of how -- what the different indications are and what the relative sizes of those patient populations are relative to POMC and LEPR deficiency.

Yes. So we are excited to be moving into different indications. So I'll start with the genetic indications, first of all. So we concentrated on biallelic POMC, LEPR and PCSK1, so they are people who have defects in both alleles. It may be possible that what we call heterozygous patients maybe have an effect on causing their obesity. And if you target that, we may see weight loss in heterozygous. In the basket study, we have been looking at heterozygous POMC, PCSK and LEPR patients. And that's a far bigger population up to 20,000 patients in our sequencing. SRC1 is a gene that's involved in the transcription and promotion of POMC expression, and people who have a defect there obviously have abnormalities in the signaling of POMC expression and, therefore, setmelanotide could potentially help people who've got a defect in SRC1 gene. SH2B1 is an adapter protein, and that's in involved in leptin receptor activity, and defects in that gene may also cause decreased signaling in the pathway. So the philosophy is to look at more genes in the pathway. And as Hunter said earlier on, when you start adding up these genes, SRC1, SH2B1, heterozygous. And then if you look at people who've got defects in the MC4 receptor itself, the action of setmelanotide, some defects there may respond to setmelanotide. So part of the problem is the signal, and setmelanotide may be able to work in people who've got a defect in this. We add those up, you get to about 85,000 patients. So it's important to look at Rhythm as not just 1 compound, 1 or 2 indications. The goal of setmelanotide is to show benefit of treating numerous genes in the MC4 pathway. The POMC and LEPR give us confidence that a defect in the pathway can be treated, and the idea behind our basket studies to look at more genes. I've highlighted SRC1, SH2B, MC4 receptor, heterozygous. When you look at syndromes as well as Bardet-Biedl and Alström are syndromes like Smith-Magenis that also may have defects in the pathway. So all these diseases, all these genes, we want to be able to look at them and move ahead into more clinical studies. We hope probably by the end of the year to have at least one readout of the HETs or one of the other indications. What we'll be looking at is, does the drug cause meaningful weight loss? Does it cause weight loss over time? And is it safe and effective? And if we've got that data, we'll share with you by the end of the year.

And the only thing I would add to that, Graig,is that COVID did stop recruitment of new patients into the Phase II programs, the different indications. But we did restart that in May, and we have been enrolling new patients in all of those. So we're, again, hopeful that we can meet our guidance of getting a readout on the HETs, which has been going on the longest, plus at least one other of these indications by the end of the year. It will be challenging for the latter, but because COVID really kind of stopped things for a good 3-ish months, because we didn't -- we grew increasingly uncomfortable about enrolling new patients in late February, early March because of all that was going on. And then by second week of March or so, all the sites were shutting down. So...

Great. That's helpful. Thanks for that reminder about the COVID-19. As we think about those additional indications, Murray, that you mentioned, how should investor think about setmelanotide and its mechanism of action relative to each of these other's indications? And what that probability of success might look like from indication to indication? In other words, is there a reason to believe that setmelanotide might work -- had a higher -- probably working in one indication versus another? How do we make sense of that?

Yes. So I wish I had an easy answer to that. I don't. But I think we've got confidence in the correcting the defect in the pathway. So we've seen good responses in POMC and LEPR. BBS, the genes involved in Bardet-Biedl syndrome are in the pathway. And the Phase II data in Bardet-Biedl, I remind you, showed 22% weight loss. So I'd hope to see -- so our -- my expectation is to be a minimal bar of 10%. Now that's quite a high bar because 10% weight loss is clinically meaningful. So I'd hope that many of the genes in the pathway would have a great [ percent ] response. Obviously, we need to wait and see. But we want to clearly show a differentiated from an effect in the general obese population. So we are encouraged by the POMC and LEPR as a proof of concept. I think the BBS genes in the pathway give us confidence to move into Phase III, and we look forward to sharing some data in the newer genes.

I might add 1 or 2 things to that. MC4R is an interesting situation because it is our site of action. And so theoretically, you would say if somebody's gene -- if somebody had a gene variant at that site of action, we shouldn't work, as Murray was talking later. But we -- you're actually able to test that preclinically particularly well. So you can test a variant, and we've disambiguated all the potential variance for MC4R. You can test it against the natural ligand outside the clinic. And then you can test it against setmelanotide and see what happens to the production of -- see how activated the receptor gets. So your preclinical evidence for the subset we believe to be rescuable gets to be a higher confidence situation. SRC1 is similar in some ways because the work that's been done there, which was done in Cambridge by Dr. Farooqi, she tested the level of POMC expression in those patients, and it was a low level of POMC expression. So there's -- again, given that what we're essentially doing is substituting for MSH, which is the cleaved version of POMC, it improves your confidence. Heterozygous is very varied. There are very, very severe manifestations of heterozygous patients that present very much like homozygous patients. So what we've done there is we've subset the patients into cohorts based on their gene variance. And so we're focused really not on every HET patient because that would be hundreds of thousands of potential patients. We're really focused on those where we know the variant is causing loss of function or has a higher impact on the pathway in and of itself.

Maybe just a few more questions on setmelanotide before we talk about some other topics, and we've got about 5 minutes left at least according to my watch. But in terms of the revenue opportunity, what have you guys said in terms of the revenue potential for setmelanotide? And have you -- looks like across the different indications.

So we have not given any guidance nor breakout on that. We do believe that if the patient numbers, if we are able to make setmelanotide -- demonstrate that setmelanotide works in the potential patient populations we've identified, we think this will be a very, very meaningful opportunity for setmelanotide from a revenue perspective. You can do your own -- choose your own analogs in terms of people with potential patient populations of up to 80,000 patients, 85,000 patients and think about what that might mean. But we certainly believe that's going to be a very meaningful opportunity for investors.

And just maybe my last [Audio Gap] in terms of this basket study and efficacy in different indications. You've mentioned 5% is the bar, and you've obviously seen greater than that in your POMC and LEPR indications. But what would look good coming out of this basket study? Is there a hurdle? I heard 10%. How should we think about what that hurdle should look like for what you think looks good?

So I think it's not just one answer. So I think it's not just how many people get over 10%. It's how long they maintain it, what the trajectory is, so we may look at 3 months. And if the line of weight loss is going down, and we extrapolate that over a year, that would give us a high number. That would be encouraging. So we'll be looking at duration of effect, number of subjects who get that effect, effect on hunger, effect on other features, blood pressure, lipids. So it won't be one specific thing. But I think we'll -- there's enough with the weight loss, the hunger, quality of life that if we see encouraging data that's similar to what we've seen before, we would certainly want to move into Phase III with a number of those genes.

Okay. Great. I'd be remiss if I didn't also ask about another pipeline opportunity, which is earlier phase, but there's the Prader-Willi syndrome. Just maybe briefly kind of what's the status? And how do you see the opportunity with Prader? Really, we haven't seen any successes at all, so if you could just maybe very briefly describe your optimism around that pipeline opportunity.

Yes. So the pipeline drug we've got is ghrelin o-acyltransferase inhibitor, GOAT inhibitor. And that idea is it will alter ghrelin levels. I think there's a lot of thought that ghrelin was important in Prader-Willi. And the question was, was it a bystander? Or was it causative? I think recent data from companies means that everyone should stop and think the role of ghrelin in Prader-Willi. We obviously need to stop and reflect on that. It's important to roll that ghrelin plays a role in other disease states. And I think we are early enough that we can -- we've got a good molecule. We need to look at other preclinical models of different diseases, and it may well be the future of our GOAT inhibitor maybe in a different disease state.

Okay. Great. We've got about 2 minutes [Audio Gap] And so do some housekeeping questions in terms of what your current cash is, what that cash runway looks like, and also ask about kind of upcoming catalyst for the company. And then I've got one last question.

Sure. So we have $257 million in cash at the end of March, and that's sufficient to fund our planned operations through the -- through at least into the beginning of 2022. So we're excited about that because we think we'll get through several milestones, including the Bardet-Biedl Phase III readout with more than a year of cash on hand, and we're managing on that basis. And then I would say in terms of potential milestones, we have been working on a weekly formulation. We've been doing a PK study on that. We expect data on that relatively soon. We have some additional supplemental and long-term extension data in POMC and LEPR that we've been finishing up. We expect that to come relatively soon. The HETs data, as we spoke about earlier, potentially additional data from the basket study, PDUFA date on the 27th of November, Bardet-Biedl and Alström readout either in late December or the beginning of next year. So we are going into a very, very busy period for Rhythm Pharmaceuticals. And by the time we have this conversation next year, you may be talking about a very different company.

My very last question, Hunter, you're Interim CEO, and I just wanted to know if there's any update on the CEO search for the company.

So there's nothing specific. The Board is actively continuing the search process. I think COVID-19 slows things down -- like that down for a variety of reasons. But the Board is very comfortable with our financial position, our clinical execution, commercial preparations and particularly the quality of the management team. So they believe that the company is in good hands and moving forward. So the focus remains on finding a CEO with relevant leadership experience in an organization that has transitioned from development to commercial, someone who appreciates the unique elements of community building, health care provider education, patient advocacy and all these critically important elements to successful commercialization and growth in ultra-rare diseases.

Okay. Great. Well, with that, Murray, thank you very much. Hunter, thank you very much as well. Best on success throughout the balance of the year, and thank you for joining.